Investment insights

Want to know the stories behind the numbers? We had Chris talk us through the latest market activity and what’s on the horizon:

It’s shaping up to be another big year for markets, with Chris explaining that while there are several markers pointing to a positive outlook for 2024, there are also others that may lead to some volatility.

With the Australian Bureau of Statistics reporting that the Consumer Price Index (CPI) rose 0.6 in the December 2023 quarter, the smallest quarterly rise since March 2021, economists are predicting that the US Federal Reserve and the Reserve Bank of Australia will likely cut the cash rates in the US and Australia in 2024, providing some relief for consumers and borrowers in general.

There’s also a big election on the horizon, with history showing that US election years tend to be good for equities markets.

However, a number of geopolitical risks may cause disruption to markets. Over 100 container ships were reported to have been rerouted around southern Africa by December 2023 in order to avoid the Suez canal, in response to attacks on ships off the coast of Yemen.

According to the Guardian, the rerouting adds around 6,000 nautical miles to a journey from Asia to Europe, which could add up to four weeks to product delivery times. With the global supply chain still recovering from its pandemic lags, this could have an impact on inflation.

Meanwhile, though still healthy for now, employment rates in the US and Australia are showing signs of slowing.

Given the outlook, the Investment team remains focused on the long-term management of the portfolio, while being mindful of current market conditions. In February 2024, the Investment team implemented a strategy that aims to help protect some Qantas Super portfolios in times of significant market volatility.

Chris explained that this strategy has already been in place for a while to manage Qantas Super’s defined benefit portfolio, and has been extended to specific defined contribution portfolios.

Why is there often a difference in the performance of Qantas Super’s Australian and global listed equities portfolios?

Chris explained that there are a couple of reasons behind the varying returns, with one of the main ones being the different types of companies that are listed in Australia compared to overseas.

For example, the benchmark ASX 200 index leans heavily towards banking, mining and energy stocks, while the S&P500 in the United States is more diversified across industries, such as technology, finance, healthcare and more, however the S&P500 performance has been driven largely by the ‘magnificent 7’ tech stocks – Apple, Microsoft, Amazon, Nvidia, Meta Platforms, Tesla, and Alphabet.

What about currency?

Then there may be further variations in performance between global and Australian equities due to currency.  Qantas Super’s global equities portfolio is unhedged, which means performance is driven by not only the return of the markets, but also any movement in the return of the Australian dollar relative to foreign currencies.

Qantas Super members love to travel, and we all know that the relative value of the Australian dollar can make an overseas holiday feel cheap, or expensive! While global equities are unhedged, currency exposure is managed at the option level.

“As an Australian investor, having exposure to foreign currencies is a really good diversifier.”